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6 Questions to Ask Before Buying a Strategic-Beta Bond ETF (Part 2)

There are no free lunches in the bond world--funds that consistently deliver market-beating returns almost certainly take greater risk.

Alex Bryan 25.10.2018

In part 1 of this article, we went through the first 3 questions to ask before buying a strategic-beta bond ETF. In this part, we will run through the remaining 3 questions to ask.

How aggressively does the fund pursue its targeted factors?

Funds that pursue their factor tilts more aggressively have greater active risk: more room to both outperform and underperform. Funds can strengthen their factor tilts by setting more demanding thresholds for inclusion and incorporating factor characteristics into their weighting approach. However, departing from market-value weighting can increase transaction costs and make the fund’s index more difficult to track because most alternative weighting approaches overweight smaller and more thinly traded issues.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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